The biggest challenge facing the Philippines is to move the economy to a higher level of growth and job creation. PCI barely grew during the 1980s and 1990s, with boom-bust cycles triggered by political events and high population growth. Of the ASEAN-6, for the past five decades, the Philippines had the lowest GDP and PCI growth. But since 1999 through mid-2010, real GDP growth averaged 4.6%, raising PCI from US$1,019 to US$1,748 over a decade. Only recently, with rising remittances and slowing population growth, does Philippine GDP growth again come close to the ASEAN-6, except for Vietnam.
Philippine growth has not been inclusive. In 2006 there were 24 million poor Filipinos, about the same percentage of population as in 1986. By contrast, the other ASEAN-6 eliminated poverty or reduced it by half. In the fast-growing Asian region, the Philippine economy is becoming relatively smaller, in share of total GDP and in PCI, among the ASEAN-6. In 1960 Philippine PCI was second to Japan. In 2009 Indonesian PCI passed the Philippines, as Vietnam is projected to do in 2014, which will give the Philippines the lowest PCI of the ASEAN-6.
Although located in the worlds fastest growing region (rising 8.9% in 2010), the Philippine economy has long grown slowly. China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand have grown an average of 7% for over 25 years. India and Vietnam may eventually join this group. The Philippines must have an 11.6% growth rate to reach a PCI of US$12,0001 by 2030, assuming a 2% population growth rate declining to 1.5%.
With a labor force of 38 million, up 50% since 1990 and projected to reach 54 million by 2030, creating new jobs and giving students and workers needed skills are major challenges. Combined unemployment and underemployment rates exceed 25%; 43% of the workforce is in the informal sector. The NCC has called for an industrial policy to create 15 million quality jobs, reducing unemployment to the regional average and ending underemployment.
Remittances of Filipinos abroad increased 187% in 9 years to approach US$ 20 billion and will soon be the countrys largest source of foreign capital. They stimulate an increasing share of GDP growth and shield the elite from pressure to reform. Global demographic trends favor the country, with its large and growing labor pool for overseas and domestic employment. Foreign labor markets in countries with aging populations and labor shortages remain open.
Investment is needed for higher growth, yet the investment rate has fallen from 25% in 1997 to 15% in 2009. FDI is weak, and government has inadequate revenue for capital spending. Doubling spending on physical infrastructure (to 5-6% of GDP) and social infrastructure (to 8-9% of GDP) would greatly improve the investment climate and support higher, sustainable rates of growth.
Philippine FDI inflows are the weakest of the ASEAN-6. Political instability deterred foreign investment in 1970-89, when net FDI averaged US$ 200 million. Net FDI rose to a US$ 1.4 billion average in 1990-2009, reaching US$ 3 billion in 2006 and 2007. From 1970-2009 the country received US$ 32 billion in FDI, but Indonesia, Malaysia, and Thailand each received 2-3 times as much. Over the last decade, the Philippines received only 4.5% of total FDI of the ASEAN-6. Many multinational firms not already present in the Philippines bypassed the country.
Philippine commodity exports reached a record high of US$ 50.5 billion in 2007, contributing 35% of GDP but face many challenges. The top exports are electronics (60%) and other manufactured goods (25%). Agro-based products (6%) and mineral products (4%) are underdeveloped. IT-BPO service exports valued at US$ 8 billion in 2010 could more than double to US$ 20 billion by 2015.